Glaring across the screens today, as stocks, the dollar and U.S. yields slid sharply, was a major divergence.
At one point during the day, the S&P 500 had shed 3%, but along the way the Russell 2000, an index made up of small cap stocks, was stubbornly resisting the tide of selling. By the day’s end, the IWM ETF that tracks the small cap index finished up 1%, while the S&P 500 finished down nearly 1%.
For those that have missed the big run up in stocks, paralyzed by fear, skepticism and doubt, this recent sharp slide in stocks is giving them a second chance. The best investors in the world will tell you flatly, that they lick their chops when they see stocks slide for non-fundamental reasons. In fact, billionaires Bill Ackman and Carl Icahn intimated just that, in their recent, respective, investment letters.
At today’s lows, we now have officially corrected 10% in the S&P 500. And the Russell 2000 has corrected 14%. With that in mind, and the above discussion, this next chart should be pinned on the wall of every stock investor.
This is the chart of the Russell 2000, and its aggressive bounce from the 2011 correction.
You can see from the chart, after a decline in 2011, small cap stocks bounced by 28% in less than one month. Within five months the small cap index has rebounded by 38%. Now, here’s the powerful fuel that argues an aggressive bounce is underway: The short interest in the Russell 2000 is at the highest level since 2011.
With that said, here are four small cap stocks that look primed for a bounce. Even better, each are owned by billionaires and each has a large short position that makes it vulnerable to a squeeze:
1) SandRidge Energy (NYSE: SD) – Billionaire Leon Cooperman owns 9%. Nearly 20% of the float is short, taking the opposite side of Cooperman.
2) Cleveland-Cliffs Inc. (NYSE: CLF) – Casablanca Capital owns 5.2%. Over 40% of float is short.
3) Conn’s Inc. (NASDAQ: CONN) – Billionaire David Einhorn own almost 10% of this stock. 48% of the float is short.
4) Caesars Entertainment CZR -4.29% Corporation (NASDAQ: CZR) – Billionaire John Paulson owns 9% and about 35% of the float is short.
To learn more about the stocks owned by billionaire investors, followBillionairesPortfolio.com.